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Returns With Lower Volatility

Investors in IDFC Sterling Equity have enjoyed risk-adjusted returns at low volatility

The fund has made its mark in a relatively short period. Launched as a closed-end scheme in February 2008, just after equity market started heading south, Andrade took his time building up an equity portfolio. A move that helped it navigate through turbulent waters with some respite. In the first quarter of 2009, the fund stayed afloat with a positive return of 0.34 per cent (category average: -8.29%). Unfortunately, he was late in hopping on to the rally that began in March 2009 and increased the equity allocation to 95 per cent only from July onwards. Eventually, he did manage to beat the category with a return of 105 per cent (category average: 98%).

The fund turned open end in September 2009 and in 2011 changed its name from the erstwhile IDFC Small & Mid Cap though its mandate stayed constant.

The investment universe primarily consists of stocks chosen from CNX Midcap. Around 35 per cent of the portfolio can be invested in stocks which have a market capitalisation higher than the highest market capitalised stock of that index. However, as per the October portfolio, its top 15 holdings* show just three stocks that are index components. “IDFC Sterling actively builds a portfolio of companies with proven business model and little environmental risk. It invests in relatively medium sized business which would eventually end up either transitioning into business leaders or operate in environments that are small but rapidly transitioning into core industries,” says Andrade. The fund manager boldly rides his bets and doesn’t shirk from swift sectors moves.

Investors in this fund have enjoyed better risk-adjusted returns with the lowest amount of volatility. It has not only generated highest alpha in the category but has done it with lowest standard deviation of returns. Over the three-year period ended October 31, 2011, it delivered an annualized return of 38 per cent (category average: 29%). The impressive performance has resulted in huge inflows which, in turn, has led to an increased level of diversification. With around 20 to 30 stocks till mid-2009, the number increased to 48 (March 2011). None account for more than 5 per cent of the portfolio.

Since July 2009, the equity allocation has never gone above 95 per cent again and has averaged at around 89 per cent. Nevertheless, it has not hindered returns.

* Since August 2010, the fund monthly discloses only top 15 holdings